Where should investors park their debt funds after RBI's policy move
Subscribe to enjoy similar stories. The Reserve Bank of India’s (RBI) decision to reduce the cash reserve ratio (CRR) in its bi-monthly monetary policy marks an important first step in its policy easing cycle.
While narrowly seen as a liquidity measure, injecting close to ₹1.16 trillion in primary liquidity, the CRR cut carries broader implications. Unlike open market operations (OMOs) or forex intervention-led liquidity infusions, a CRR cut directly reduces the cost of funding for the banking system and facilitates better transmission of the anticipated rate-cut cycle.
Read this | RBI cuts banks’ reserve requirements, a precursor to policy rate easing Although some market participants expected a simultaneous repo rate cut, particularly in light of the weaker-than-expected second quarter GDP print, the significance of this move should not be underestimated. The RBI is likely to follow up on the CRR cut with a series of repo rate reductions starting February, provided there are no significant macroeconomic or geopolitical disruptions.
Additional liquidity measures, such as open market bond purchases, are also anticipated in the coming quarters. The domestic macroeconomic landscape has evolved to support this easing cycle, driven by significant improvements in twin deficits (fiscal and current account), stable and low core inflation, an anticipated decline in headline inflation (projected by the RBI at 4% for Q2 FY26), and softening growth trends.
Read this | Vivek Kaul: India’s GDP growth slump holds lessons in forecasting Debt markets have already begun pricing in the expected easing measures. Longer-maturity government securities (G-Secs) and corporate bonds have reacted positively over the last 18 months, while short-
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